CollaGenex Pharmaceuticals Announces Expected Third Quarter Results.

Business Editors

NEWTOWN, Pa.--(BUSINESS WIRE)--Oct. 3, 2000

CollaGenex Pharmaceuticals, Inc. today announced that it anticipates a loss in the third quarter of 2000 of $0.23 to $0.26 per basic and diluted share compared to a loss of $0.43 per basic and diluted share in the third quarter of 1999 and a loss of $0.27 per basic and diluted share in the second quarter of 2000.

While the current annualized sales value of Periostat prescriptions filled in August is about $24 million, or about $6 million per quarter, Periostat net sales for the third quarter of 2000 are currently expected to be $4.2 million. Periostat net sales were $4.2 million in the third quarter of 1999 and $5.7 million in the second quarter of 2000.

Factors influencing Periostat sales:

-- CollaGenex sells Periostat to wholesalers and large drug store chains, who
then distribute the drug to pharmacies. Wholesalers generally maintain higher
inventory levels during periods of strong growth in end user demand and lower
inventory levels when growth in demand is slower.

-- The strong growth that Periostat experienced during 1999 led to relatively
high inventory levels in wholesalers. In addition, wholesalers and large drug
store chains increased inventories in advance of a price increase during the
fourth quarter of 1999. During the first and second quarters of 2000, wholesale
buying continued to be slightly higher than estimated end user demand.

-- As the rate of growth in end user demand slowed during 2000, wholesalers
have reduced their weeks of sales in inventories and have drawn down existing
inventories to meet demand, rather than placing new orders.

Total net revenues for the third quarter of 2000 are expected to be $5.4 million compared to $4.3 million in the third quarter of 1999 and $6.7 million in the second quarter of 2000. Total net revenues in the third quarter of 2000 reflect strong growth in contract revenues, particularly co-promotion revenues for Vioxx, a Merck & Co. drug that CollaGenex promotes for the treatment of acute dental pain.

"While it is disappointing that fluctuations in wholesaler demand will result in lower net sales of Periostat than in the previous quarter," said Brian M. Gallagher, PhD, chairman, chief executive officer and president of CollaGenex, "it is encouraging that, despite a reduction in the number of procedures carried out in the dentists' offices during the summer, prescription demand increased modestly from the second to the third quarter of 2000. However, while more than 700,000 prescriptions have been filled for Periostat since launch, this still represents a very small penetration of our market, which is the 67 million adults in the U.S. who have periodontal disease, including the 13 million who actively seek treatment each year."

"Based on market research," Dr. Gallagher continued, "we know that the rate of adoption of Periostat by the dental community has slowed in 2000 primarily because many doctors have chosen to prescribe Periostat for only a subset of their eligible patients, typically their most advanced or refractory cases. Other dentists have simply been slow to accept a new pharmaceutical therapy for a disease they are accustomed to treating solely with mechanical procedures. However, a growing number of dental professionals are prescribing Periostat more broadly, and we are confident that we will be able to expand the usage of an increasing number of dentists. Recently published results of our pivotal Phase III clinical trials in the Journal of Periodontology, the official publication of the American Academy of Periodontology, have confirmed the safety and efficacy of Periostat in a broad patient population."

Actions to increase end user demand:

-- Direct-to-consumer advertising campaign. In early October

2000, we will launch a direct-to-consumer advertising test

campaign in Tampa and St. Louis for a three month trial

period. Market research conducted on our behalf by Bozell

Healthcare, one of the largest healthcare advertising agencies

in the world, has revealed that, among patients with adult

periodontitis, there is less than a 10% awareness that a pill

exists to treat their disease safely and effectively. This

contrasts to more than 90% awareness of Periostat by dentists,

who have been the focus of our marketing efforts. Many of the

patients in this study also indicated that upon seeing an

advertisement they would ask their dentist about Periostat.

DTC advertising has significantly increased the sales of other

prescription products. If the results of this two-city test

are favorable, we intend to roll-out a national campaign in

early 2001.

-- Expanded Use Initiative. In June of this year we implemented

an Expanded Use Initiative designed to educate dentists on the

benefits Periostat offers to all of their patients with adult

periodontitis. This program illustrates how earlier disease

intervention using Periostat can halt the progression of

mild/moderate periodontal disease to severe disease. The

program also highlights how Periostat can be a practice

builder and revenue generator for dentists by increasing

patient satisfaction and improving patients' oral health

sufficiently to allow for increased dental restorative work.

CollaGenex will be hosting a conference call for the investment community today at 9:15 A.M. Eastern time. The dial-in number is 800-982-3654. The international dial-in number is 703-871-3021. A replay of the call will be available through October 12, 2000.

The replay number is 888-266-2086, passcode 4643533. The international replay number is 703-925-2435, passcode 4643533. The conference call will also be simulcast over the Internet at www.vcall.com and will be archived on the company's web site at www.collagenex.com.

CollaGenex Pharmaceuticals, Inc. is a specialty pharmaceutical company focused on providing innovative medical therapies to the dental market. The company's lead product, Periostat(R), was approved by the FDA in September 1998 and is the first and only pharmaceutical to treat periodontal disease by inhibiting the enzymes that destroy periodontal support tissues.

Periostat is marketed to the dental community by CollaGenex through a professional pharmaceutical sales force composed of approximately 120 sales representatives and managers. Currently, the company's dental sales force is also marketing Vioxx and Denavir.

Research has shown that the enzyme-suppression technology underlying Periostat may also be applicable to other diseases involving destruction of the body's connective tissues, including cancer metastasis, osteoporosis, osteoarthritis and wounds. CollaGenex intends to pursue the research and development of these other applications primarily through partnerships with third parties.

To receive additional information on the Company, please visit our Web site at www.collagenex.com, which is not a part of this press release.

This news release contains certain forward-looking statements within the meaning of section 21E of the Securities and Exchange Act of 1934, as amended. Investors are cautioned that forward-looking statements involve risks and uncertainties, which may affect the Company's business and prospects.

The Company's business of selling, marketing and developing pharmaceutical products is subject to a number of significant risks, including risks relating to the implementation of the Company's sales and marketing plans for Periostat, risks inherent in research and development activities, risks associated with conducting business in a highly regulated environment and uncertainty relating to clinical trials of products under development, all as discussed in the Company's periodic filings with the U.S. Securities and Exchange Commission.